Don't Ignore This Chart!

Russell 2000 On Verge Of Breakdown But.....


Small cap stocks tumbled today, losing 1.23% and far exceeding losses incurred on the other major indices.  Since Monday's close, the Russell 2000 has dropped approximately 3% while the benchmark S&P 500 has retreated less than 1%.  One hallmark of a bull market is the outperformance of small cap stocks relative to the S&P 500.  It's a signal that market participants are in "risk on" mode.  The past three days that has not been the case.  It's not a sign to panic, but it is beginning to raise my eyebrows.  The following shows relative strength in the Russell 2000 throughout 2016, but a sudden reversal this month:

The action on Thursday broke both trendline support and absolute price support.  There is further price support just below 1190, which is exactly where the Russell 2000 closed today.  Tomorrow begins a very bullish historical period for U.S. stocks and, based on this chart, it's fairly important to see the Russell 2000 begin to outshine the other indices right away.

Happy trading!


Tom Bowley
About the author: is the Chief Market Strategist at, where he provides stock market education, guidance, and trading strategies using a unique combination of technical, fundamental, and historical analysis. Tom provides members with four portfolios (Model, Aggressive, Income, and Value), all designed to beat the benchmark S&P 500, and a revolving Watch List of hundreds of companies reporting strong quarterly earnings (must beat both revenue and EPS estimates) and exhibiting technical strength as well. These companies comprise EarningsBeats' annotated Strong Earnings ChartList (SECL), from which Tom trades exclusively. Tom writes a Daily Market Report (DMR) for members to include an executive summary, market outlook, sector/industry watch, and trading ideas. Learn More
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